Free economies exhibit more resiliency

March 14, 2011

Freedom New Mexico

Though it’s hard to imagine, Japan’s 8.9-magnitude earthquake could have been worse. Japan is one of the most developed nations in the world, with an extensive capitalist economy. It’s not perfect. Some protectionism and high taxes of recent years have slowed Japan’s growth. And Prime Minister Naoto Kan has warned of a “Greece-like” debt crisis. Well, it’s not quite that bad. Unlike Greece, whose debt mostly is owned by foreign banks, Japan’s government debt mostly is owned by Japanese banks and persons, giving it more flexibility.

It’s this strong, developed economy that has prevented many more casualties. “Nations that are richer and more plugged into the global economy have proven more resilient in national disasters,” said Dan Griswold,

director of the Center for Trade Policy Studies at the libertarian Cato Institute. “Nothing will protect you from an 8.9 earthquake. But a lot more people would be dead if Japan were a poor and isolated country.”

A good example was Haiti’s earthquake last year. One of the poorest nations in the world, its shoddy buildings crumbled under a 7.0 earthquake. It’s still not known exactly how many died, but ABC News reported in January that Haiti’s “government has revised upward its previous estimate of the death toll from 230,000 to 316,000, meaning about 3 percent of Haiti’s entire population perished.”

On the Heritage Foundation’s Index of Economic Freedom, Japan ranks 20th out of 179 countries, and Haiti 133rd. (The United States is ninth.) Even before the earthquake, Heritage noted, Haiti’s anti-market problems included: “Protection of investors and property is severely compromised by weak enforcement, a paucity of updated laws to

handle modern commercial practices, and a dysfunctional and resource-poor legal system. … Corruption is perceived as rampant.”

Economically, Japan has been staggered. Honda, Toyota and other stocks are down. Global oil prices dropped as a drop in Japanese demand was anticipated. The prices of other commodities also may be affected. Early reports were that five Japanese steel mills closed to assess structural damage; according to Reuters, that may increase prices due to shortages.

“The tremors from this will reverberate throughout the world economy for months, if not years,” Griswold observed. “It will have a huge impact on commodities. We prosper together, and feel each other’s pain.”

As relief efforts proceed, it’s worth emphasizing that free markets and free trade were essential to lessening the damage done by the earthquake and tsunami. Freedom just doesn’t bring prosperity; it saves lives.